A. Preliminary Thesis Proposal
B. Thesis Proposal
C. All raw notes from meetings this term
A. Preliminary Thesis Proposal
The nature of price as a form of knowledge
Created 09JAN14 Updated 16JAN14 Problem
In his 1945 paper “The Use of Knowledge in Society”, Friedrich Hayek talks about the Knowledge Problem and claims that a freemarket system is superior to a planned economy in how it determines price. Hayek argues that an individual or small committee can not gather enough relevant knowledge about all aspects of an economy in order to understand how to set appropriate prices. He says that a market system allows agents to interactively
communicate information that essentially leads to an appropriate price. This, he argues, matches supply to demand and results in fewer shortages or surpluses and highlights the fundamental flaw in the logic of a planned economy. This is a controversial claim and likely can be looked at with greater insights now given developments particularly in the social sciences. It is also extremely important given current concerns over the contributions that price
externalities have on climate change.
Is price truly a form of knowledge? How does price map on to value? What are the methods by which price, as an imperfect form of aggregate knowledge, gets encoded and decoded? What role do social systems play in facilitating and altering this knowledge transfer? What are the mechanics by which price is generated? How might we evaluate Hayek’s claim in the context of over a half century of developments in the fields of economics, complexity theory and cognitive science? How might we design new systems for aggregating knowledge from a diverse system of agents? Is it possible to integrate what are currently externalities (i.e. carbon) elegantly into price? What is the neural basis of price?
Areas of Specialization
As I intend to pursue future studies in the field of cognitive science, the primary methodological basis of this investigation will be through the field of cognitive economics and decisions sciences. This will inform a philosophical discussion of alternatives and suggestions for future empirical studies.
situated knowledge & bounded cognition complexity economics & agent based modeling decision sciences & behavioural economics semantic pointers information science semiotics
This project will generate philosophical alternatives to understanding price as knowledge and methodologies for testing this alternatives empirically. It will not be to answer the question so much as to evaluate the notion. The approach will be from a cognitive science lense, ideally synthesizing a diversity of disciplines in a topdown and bottomup fashion. I want to avoid coming at this problem from an economics lense as much as possible in order to attempt to understand similar problems in an entirely new way. I am interested, in general, in the neural basis of large scale, complex interactions of people.
This project will firstly involve an analysis of the claims and concepts in Hayek’s paper and a mapping of this information. There will be a large amount of research into the various components of this in order to develop alternatives. At this point I believe that a large part of the research will be on how we model agents with bounded cognition and how social systems facilitate knowledge transfer. It is possible that a review of studies and data in the area of decisions science might inform the basis for a model on how economic decisions aggregate.
A big emphasis will be to develop philosophical alternatives and suggestions for future experiments that would help to verify or falsify these alternatives. By understanding what forms price now, we might be able to understand how to include other types of information into that better i.e. information about environmental constraints.
08FEB14 week 5
Topic: Value, cognition and the integration of information in society Supervisor: Dr. Patricia Marino, Associate Professor, Philosophy Problem Definition
In my undergraduate thesis project I am interested in looking at the relationship between economic prices and perceptions of value. This is the idea that prices convey a type of information about the value of a thing in an economy, situated in a time and place. There seems to be an aggregation process that synthesizes and integrates a huge plurality of information about value. The integration of perceptions of value into price is a system that seems to meet needs by facilitating things like trade but is obviously imperfect. In the case of nonrenewable resources like oil the price by default does not take into account the externalities of local pollution and global climate change. Boom and bust cycles of commodities like houses, bitcoin or tulips show a behaviour of rapidly changing prices. Why does price take into account some perspectives of value and not other? How can it be that something can change in price so quickly? How is new information integrated into price?
For the purposes of this project prices can be understood as perceptions of value. Value, as I will discuss briefly in the background, means different things in different contexts. I will leave value unanalyzed for this project and focus on prices as perceptions of value. Methodologically this follows because of the historical difficulties of finding a particular unified concept of value.
Economies are extremely complex systems. The economy, of course, is situated itself in a physical world with effectively limited resources. Institutions, organizations and corporations are some of the larger actors in these systems and are complex on their own. At the core of the economy, from which the complexity emerges, are people. I want to look at the massive problem of value by looking at it from the psychology of the individual minds upwards. What kind of mechanisms, biases, and heuristics play a role in the decisions around value. I want to do this in the context of how the interactions of agents emerge to larger complexity, and with an eye for potential design improvements. I will employ an integrative cognitive science approach to this broad problem. Much work will be done to ensure philosophical rigour to create a meaningful understanding.
The overarching question I seek to answer by undertaking this project is “How are perceptions of value integrated to form prices within an economy?”. To specify the approach, I have broken down the problem into two pieces.
When it comes to economics value is an abstract, ephemeral notion. It is subjective and temporal, to any person the value of any one thing would be unique. There have been many attempts in the history of economics to
try to quantify it. In her 1962 book Economic Philosophy, Joan Robinson devotes a chapter to the history of value
as an idea in economics has been conceived of over the centuries. She makes the distinction between “value of use” and “value of exchange”. The classic example of the interaction of these two ideas is how water has a very low “value of exchange” and yet a very high “value of use”, where diamonds are the opposite. It is noted that value is not price, but value seems to explain “how prices come to be what they are.” (Robinson, 29)
After exploring the attempts of Smith and Marx to identify the source of value she concludes that it is so problematic and so laden with assumptions that it is essentially a useless metaphysical concept. Marx and Smith tried to tie value to something universally truthful that would determine a just price. For Marx it was to claim a “law of value” that is tied to labour time and for Smith it was to make claims about value derived from “moral preconceptions”. (32) She challenges the concept of value generated by these two influential thinkers by saying value in general has no operational content and no predictive power. To her it is clear that attempts to derive a unified concept of value are not fruitful.
This leads me to look at views that attempt to dissect economies as complex systems whose fundamental agents, people, are as complex themselves. It seems that though there might be such a thing as value, it is at the very least highly pluralistic. Assuming this allows an exploration of how thought pluralistic perceptions of value become prices. Therefore prices reflect perceptions of value, with value not needing to be further analyzed. This is a preliminary background into some promising areas.
One of the main inspirations for this project is Friedrich Hayek’s essay “The use of knowledge in society”. Friedrich Hayek talks about the knowledge problem and claims that a freemarket system is superior to a planned economy in how it determines price. Hayek argues that an individual or small committee cannot gather enough relevant knowledge about all aspects of an economy in order to understand how to set appropriate prices. He says that a market system allows agents to interactively communicate information that essentially leads to an appropriate price. This, he argues, matches supply to demand and results in fewer shortages or surpluses and highlights the fundamental flaw in the logic of a planned economy. Essentially, he sees knowledge of an economic reality highly fragmented and competition through local markets as a method of integrating it. The perspective that Hayek pushes is highly ideological, designed to support what would become a libertarian agenda. Nonetheless, it provides an interesting perspective of how price might be thought of something that is combined. Information as Hayek refers to it could be “perceptions of value”.
In a 1993 critique of Hayek, Allin Cottrell and W. Paul Cockshot argue that it is not in fact impossible for a centralised office or computer to gather and make use of a great deal of information. They introduce many computational ideas to what is also known as the Economic Calculation Problem in how either a centralised or market system might come to a price. The introduction of information theory to this complex interaction helps us to understand an aggregation of information or perceptions of value as a computational operation.
A more recent paper, “The Case for Mindless Economics” by Gul and Pesendorfer, outlines a radical new approach to economics neuroeconomics. It is an attempt to integrate psychological insights and neuroscientific evidence and apply it to the testing of theories in economics. I believe it is with insights from this discipline that we can understand the economic calculation problem in a new way. The authors argue against the idea that neuroscience and economics should be integrated as they approach different types of questions and problems. It is to W. Brian Arthur and his work on complexity economics that I see a strong opportunity to blur the disciplinary lines and find richer questions and explanations.
An important piece of background is the paper “Learning, Institutions, and Economic Performance”. It
- By what mechanisms are prices formed and how well do those mechanisms allow prices to track perceived value?
- What interventions might be useful to improve how well prices track perceived value?
argues that attempts to understand how institutions function “should begin from an analysis of cognitive processes” to be more meaningful. (Mantazavinos et. al, 1) They argue that decision making should be analyzed starting at the cognitive level and then the institutional and economic level, respectively.
In this project I will approach the following questions: By what mechanisms are prices formed and how well do those mechanisms allow prices to track perceived value? And, what interventions might be useful to improve how well prices track perceived value?
It will not be to answer this very broad question so much as to evaluate possibilities. The approach will be from an integrative cognitive science perspective. I want to avoid coming at this problem from an economics perspective directly as much as possible in order to attempt to understand similar problems in a new way. I am interested, in general, in the neural basis of large scale, complex interactions of people.
The project will take the form of a thesis based on the findings of my research. I hope to achieve an integrative survey of the problem. It may be the case that a more likely alternative is found. In terms of methodology, the intention is to provide a descriptive background for this type of phenomena.
I expect that this project will reveal insights into how prices are formed and how well price tracks perceived value. I suspect that price in relation to a thing is a synthesis of intuition and information. This reflects the human mind’s internal limitations both in terms of cognitive processing and memory, as well as information availability. It is also extremely important to tie this in some way to our physiology and interactions with the physical environment. I believe that this will likely be the starting point for how prices can change so quickly and why certain types of information are not included in price. It will be important to explore the interpersonal and intertemporal influence of humans on our own behaviour. This exploration may reveal if price as perceptions of value is a certain type of information that can emerge from a broad complexity. In this case it will be helpful to explore what kind of information is encoded in price.
Beliefs and the structure of our organizations hold an influence on our perceptions. The feedback loops of this complex system are as important to explore. It is clear that value is not aggregated from millions of individuals directly interacting, we are mediated by the institutions we create. I hope to use all of this information to explore interventions that might be useful to improve how well prices track perceived value.
Research Plan & Schedule
16 Preliminary Proposal
Arthur, W. B. (2013). Complexity Economics: A different framework for economic thought. Santa Fe Institute. Cottrell, A. F., & Cockshott, W. P. (1994). Information and Economics: A Critique of Hayek. Retrieved
Feser, E. (Ed.). (2006). The Cambridge Companion to Hayek. Cambridge.
Gilb, S. (n.d.). On Truth and Lies in an ExtraMoral Sense, Friedrich Nietzsche. The Modernism Lab at Yale University. Retrieved fromhttp://modernism.research.yale.edu/wiki/index.php/On_Truth_and_Lies_in_an_ExtraMoral_Sense
Gul, F., & Pesendorfer, W. (2005). The Case for Mindless Economics.Princeton University.
Hayek, F. (n.d.). The Use of Knowledge in Society. The American Economic Review., 35(4), 519–530.
Mantzavinos, C., North, D., & Shariq, S. (2004). Learning, Institutions, and Economic Performance. Perspectives on Politics, 2(1), 75–86.
Robinson, J. (1962). The Classics: Value. In Economic philosophy. New Brunswick, USA: Aldine Transaction.
Schinckus, C. (2010). Semiotics of Financial Marketplace. The Journal of Interdisciplinary Economics, 22, 317–333.
Thagard, P., & Shroder, T. (00000000 Forthcoming). Emotions as Semantic Pointers: Constructive Neural Mechanisms. The psychological construction of emotions.
C : Raw typed notes from thesis discussions Winter 2014 Paul Thagard early January ‘14
- ● Suspicious of Hayek
- ● Loads of problems with theory
- ○ oligopolies,
- ○ rational economists are essentially behaviourists
- ● what goes into decisions?
- ● theory of decision making
- ● khenmenan/tversky prospect theory
- ● emotions and decsion making
- ● distortions bubbles animal spirits keynes
○ tulip bulbs
- ● paying too much over excited EMOTIONS
- ● bust despairing
- ● individual transactions aggregate
- ○ throw out rationalism
- ○ embrace subjectivity
- ○ individual level
- ● talk to accounting/behavioural economics, get a list from Derek Koehler
Ed Jernigan January 29
- ● Value is a broad overarching concern
- ● is price a form of knowledge?
- ● Why Hayek? have to take on framing of problem
- ○ layout a collection of ideas that are broader
- ○ price is a mechanism through which we trade things
GCEH | 27
- a method
- raises fundamental questions what kind of thing is it?
- important things about value not captured
- ○ certain mechanisms, how do they/ should they function?
- ○ information vs knowledge? probably not knowledge
- ○ ask broader questions
Patricia Marino January 29
● Reading Suggestions
- ○ Joan Robinson the classics (value)
- ○ preference, value, choice & welfare Dan Hausman
- ○ create a common sense list of things people value (probably should still do this)
Books not taken from library January 29
- ● Economics, bounded rationality and the cognitive revolution herbert simon
- ● information sampling & adaptive cognition
- ● bargaining behaviour an interaction harrett
- ● Economics as a coordination problem O’driscoll
Feedback from Patricia ~ February 5
- ● V alue as a black box
○ assume for purposes of project
○ good methodological perception of value
○ vale is contextual
- ● argument for methodological value a good starting value
- ● how does the mechanism work
- ● be careful about what you are referring to
- ● the less metaphorical the better be more precies
- ● look at alternatives
- ● use simple fram to embark on the project
- ● write summaries of alternatives for own use
- ● survey of all possibilities and index this info
Michael McDonald 26FEB14
● Rhetorical Dimension of V alue
- ○ constellation of valuations
- ○ branding and propaganda
- ○ influence of actors
- ○ price cost beyond the core cost of a thing is totally subjective?
- blending of marxist, neoclassical value and then subjective after that?
- capitalism and rhetoric
- buy cheap, sell dear
- driving up prices by driving up rhetorical value
- brand dimension
● artificial accelerators
● elaborating political economy of the sign
○ semiotics, advertising essays from book
- ● Ellul mass production requires mass consumption
- ● Baudrillard profusion, branding, creating value over and above exchange value, everyday simplification of every day life
○ inflation of semiotic value ● marx commodity fetishism
■ commodity abounds with religious fetishism ● recursivity, adjustment, feedback, heart of capitalism
- ○ illusion of capitalism of value and need satisfaction
- ○ we need to be integrated into supply chain
- ○ The mind is the commodity *
- Price is production
- psychological integration
- ● Core assumption of capitalism is economic growth
- ● economists analysis of advertisemtns? is economics equipped to do this? ○ surplus value of semiotics & symbolic charges
- ● V alue obscures real price?
○ joe fresh child labour
- ● dominations (Barthes) value obscures social processes of labour
- ● believe in it enough to make it so***
- ● conjuring up vague notions ***
- ○ nebulous condensation of meanings
- ○ surplus symbolic value
- ● Pay nothing and sell it for everything
○ making it mean all sorts of things to all sorts of people
- ● consumer optimism marken runs on vague notions
- ● currency same things, symbolic system of value, runs on persuasion
- ● design of built environment (disneyland)
- ● Amsterdam rhetoric and argumentation disneyland
- ● PhDs should be done in northamerica
- ● ideology production of surplus sign value ***
CIGI Lecture Bill Janeway 05MAR14
- ● What I learned from doing capitalism institute for new economic thinking cambridge
- ● innovation economy a set of processes through which economy has grown through technology
○ hopeful monsters, new economic spaces
- ● Transformational infrastructure
- ○ railways, highways, internet
- ○ impacts can’t be known at the outset
- ○ sources of funding immediately decoupled
- ● Old math only allowed for simply assumptions, simple models
- ● laissez faire doesn’t work
(not going to finish typing this up now)
Patricia Marino status report Meeting 06MAR14
- ● Read Philip Morowski AFTER opinionated reflections of sociology
- ● Lee Smolen at Waterloo Perimeter
- ● Status report
- ○ report on process through which the question got framed and evolved conceptually
- ○ description of process, background methodological thinking
- ○ what I currently see as outline of theory
■ what thesis looks like
- ○ current sense of bibliography
- possibility of annotated bibliography
- here’s what i’m reading
- ○ part about what is needed
- ● Economics pursuit of simple physics
- ● meta ethics & pluralism
○ unity is a problem
- ● it’s no good having a thing that explains another thing as long as it’s false i.e. mathematization
- ● Question things that make people put a certain value on a thing
- ● the way various forces make us value certain things (still not the most fundamental question)
- ● Fundamental question is the first questions original
- ○ **What are forces that make people put a certain price to make things happen?
- ○ Capitalism eats up counter culture manifestion how do we make sense of this?
Some Personal Notes Mid March
● Theory of value to talke baout bubbles
GCEH | 29
○ once you know what your outcomes are harms vs gain you can do cost benefit analysis that avoids commensurability
● Skepticism about bubbles they are momentary valuation
- ○ perhaps doesn’t reflect on how people really value
- Degree of embeddedness
- certain factors bring it tumbling down
- ○ one reason oil is valued so high is because it is needed so much
- ○ but what is NEED, why is it needed SO MUCH?
- ● The way
- ○ is the fact that negatives aren’t tracked bad, purposeful?
- ○ argument of good bubble of alternate energy sources
- ● prevent bubbles with neural network expectations of purchaser
- ● approaches that might work speculate and be creative
- ● equilibrium does not exist use more complex math disequilibrium
- ● no such thing as equilibirum metaphysical
- ● examples of mispricing/examples of externalitiesdefinitions and what’s the difference?
Michael McDonald 27MAR 14
- ● Mirror of prediction Baudrillard
- ○ Baudrillard consumption is critique of marx and his emphasis on production
- ○ it’s not really about satisfying needs
- what we consume is bad for us (i.e. processed foods)
- or bad for the planet, or bad for people (child labour)
- ○ Baudrillard it’s about integrating society into a particular conception model in this case into a
system of consumping
- ● Heterogeneous complexity rejoinder to economic
- ○ beyond analysis and remedy
- ○ terms like capitalism you think you know what you’re talking about with broad terms like that and
then you realize theires nothing at all
- ● Read more Baudrillard
○ hyper reality/simulations/metaphysics of copy and reality/ critique of the political economy of the sign
Meeting with Patricia 28MAR14
- ● Analytic methodology is about forming questions with good arguments
- ○ questions that anyone could understand
- ○ analytic: simple & clear continental not a value, some things are complicated
- ● Economic presuppositiosn of a game
- ○ phenomenological aspects of the feeling
- ○ experience the difference between the code and the feeling
- ● Economic answers to the thesis quesiton
- ○ how much does it matter
- ○ what kind of reWard
- ● Until you talk about these values/\
○ economics is not about physics at all, things are and then economics is values and allows you to compare
● Philosophy of science could you reduce everything to physics?
Meeting with Jason Thistlethwaite, Balsillie School 04APR14
- ● Questions
- ○ market vs institutions?
- ○ background on two perspectives above
- ○ are you going to focus on climate change
- ● What are the existing hypotheses
- ○ Trick to put categories around different schools of thought
- ○ i.e. austrian vs institutional school make this divide clear
we price doesn’t track externalities
GCEH | 30
- labour land
- aggregation of marginal preferences
- USE AND INTELLECTUAL HISTORY AND TIMELINE?
○ How to categorize difference mechanisms ■ really work with supervisor on this
- ● Robert Heilbroner the problem of value and the constitution of economic thought
- ○ intellectual economic historian
- ○ organizing thoughts on this
- ● critical feminist literature in the household unpaid work in the houshold
- ● for synthesis hoksysns recounting the global economy counting global work
○ we are choosing one perspective (embedded)
- institutions historically contingent
- implications for institutions in last section
● So What?
○ economics makes choices about what to value, and institutionalizes this
- it becomes encoded over time the imposition of certain values
- where did the ideas of the rules of the game come from?
- do they make sense? do they account for diversity?
- ● break down systems of thought
- ○ difficult to make the comparison it’s not a tradeoff but a variation
- ○ intellectual history
- ● complexity we get it it’s difficlt
- ○ there were these centralized systems (soviet) but we didnt have the right tools to sustain them
(TOOLS OF INVESTMENT BANKERS, TOYOTA PRODUCTION SYSTEM, FIRMS ARE COMPETITION FREE ZONES, PERHAPS WE HAVE THE RIGHT TOOLS TO SET UP THE RIGHT INCENTIVE SYSTEMS)
- ○ it’s not one or the others
- ○ there were these centralized systems (soviet) but we didnt have the right tools to sustain them
- ● in first section set up a tension between the perspectives
- ○ there is a debate over how we are integrating
- ○ synthesis what are similar/what are different
- ○ some have won, quite evidently, some have lost power involved & tradeoffs
- ○ rhetorical dimension of persuasion
- ● constructivism ideas matter and how they’re framed
- ○ how did different ideas gain authority and power?
- ○ accounting set in mind from heuristics from young age
- ○ mental models
- ○ authority of the profession of accounting
- ○ cognitive governance financial account choosing plan of finance
- ○ epistemic arbitrage
- ● suggested sections
- ○ 1. distinction of debate/ tension of integration of value
- ○ 2. so we have all of them similarities along the lines of my question
- ○ 3. environment this is why it all matters so what
- ● authors are going to say what ought to change, what levers are there to change it? what are the patterns of how things grow in value in past?
- ● Model (one mechanism)
○ government aggegating emerging social norms
○ capture the sessence of ideas?
○ market only responds to what?
○ tension of keynesian
○ heres how we embedded ideas about energy and institutionalized the hydrocarbon ○ why not look at how this happened and then figure out how to do it again?
- ● History of hydrocarbon
○ Daniel Yergin
GCEH | 31
- boom bust/ bubble
- align its value of energy incentivize to create energy how does it apply to green?
- institutional lag
● i.e. team power for hydrocarbon emergence?
- demographic mechanics
- explore this further fascinating
● synthesis vehicles and mechanisms to better reflect value
○ carbon bubble is there any evidence that mechanisms that made last bubbles at work? or were described in section one?
- ● Books Ecological economics look at physics or higher order. ○ neoclassical
- humans are exogenous
- humans are rational wrong
- emphasis on throughput
- ignores first/second law of thermodynamics
- ● *Converting highly usable good into less usable goods throughput (huge amounts of waste) and the way the system functions
- ● *we have to intrinsically believe in the price of carbon, until there is embedded cognitive consensus prices aren’t going to reflect it
○ what interventions will speed this process up? ● Ecology of commerce Paul Hawkin
○ speaks about value ● Snowball effect
○ more work needs to be done on supply chain
- ● Google climate change and perceptions of value
- ● Y ale project on climate communication
- ○ Anthony Ligrarivits public opinions
- ○ risk perception why do some justify and some ignore (cog scie)
- ○ history of environmentalist movement
- ● Yergin oil and hydrocarbons
- ● Ultimately it’s people creating value
- ○ not exogenous calculator in the sky
- ○ it’s us
- ○ certain segments of population that have their hands on the levers influence
- ○ arbitrary decisions to choose paths
- ● Cognitive mapping & climate change
- ○ messy but useful
- ○ neural patterns about risk find the connections about risk
- ● Community of individual mindset
- ● Knowledge has inherent power
○ info asymmetry lets certain people choose